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Friday, December 26, 2008

Now that Christmas is past I feel a little more open to being grumpy again. It is also time that I put my Economist's hat on again.

Since my Libertine Libertarian youth I have been a Monetarist. I was there when Keynesian Economics was killed, gibbeted and left on the ramparts as a warning for all to see what happens to those who follow false economic doctrine. I remember the '70 and the stagflation that resulted from Nixon-Ford-Carter Keynesian economics. I remember the painful medicine of the early '80s that we had to go through to fix the foolishness of the previous decade. We should know better - some like the national treasure Thomas Sowell do - most don't it seems.

Those who have caused this crisis; from the Diversity Bully Foolishness that is/was the cause of the sub-prime mortgage mess to those who are leading our economic policy are even older I than I am - they know this story even better than I do. I was just the geeky kid who watched the news after football practice and read every news magazine he got his hands on - and then went on to college to discover the WSJ, The Economist, National Review, and High Times. But I digress.

Most of you should remember the S&L crisis of the late '80s. What brought that on? Greed and crime brought on by those who sold their soul for a few extra percentage points in the short term - they thought history had nothing to teach them - they were smarter and the rules were new.

The dot-com boom and bust in the late '90s even more remember. What brought that on? Greed and a suspension of belief in a balance sheet and the lessons of economics that are easily traced back to renaissance Holland. Remember those who left their jobs to day-trade for a living. Those people thought history had nothing to teach them - they were smarter and the rules were new.

And now the housing bubble. Those who were caught in the housing bubble in SoCal in the early '90s should have seen this coming. Housing prices can never increase exponentially above median income for a long period of time - classic ponzi scheme. Remember those who left their jobs to flip houses for a living? Those people throught history had nothing to teach them, they were smarter and the rules were new.

So, here we are. The US gov'munt is printing money like it is going out of style ... which it is. Massively increasing the supply of money in a desperate attempt to have the public fix private crime. The Treasury Secretary used to run Goldman Sachs. What was ground-zero for the 30-to-1 leveraging off of the Diversity Bullies' sub-prime backed, worthless securities? Goldman Sachs. Who is one of the largest recipients of the TARP funds? Goldman Sachs.

Who was Paulson's predessor at Treasury? Of course, John Snow. What is John Snow doing now? Of course, he is the CEO of Cerberus. What is Cerberus? Well, it is the private equity firm that bought Chrysler. Who is trying to get money out of the gov'munt to protect their stupid investment? Chrysler.

What is the major reason that GM, Chrysler, and Ford have such a hard time making any money? Simple. Over the last few decades, they have made deals with their unions that are simply unsustainable. I remember one of my economics professors in the 80s warning about this. They try to make cars as cheap as they can in order to make room for all the benefits that the unions have demanded. Their cars, especially GM, look, drive, and feel cheap. It isn't the workers either; Mercedes, BMW, Toyota, Nissan, and more have plants in the USA and they make outstanding products - that are even exported to Europe and Asia. What is the difference? No unions. Reasonable business plans, and solid management.

The financial bailout; does it demand change in the leadership that brought about the collapse of their companies? Is there a drive for criminal investigations into the balance sheet shenanigans? No. Who used to work for who. Who have what money to what politician's campaign. Who have the same lobbyists. It is all there.

The auto bailout, does it demand a change in leadership from both the companies and the unions? No. How much money do unions give to politicians. What politicians take it. Who have the same lobbyists. It is all there.

Sometimes in a market economy you have to allow failure. Failure and bankruptcy is how the economic body rids itself of waste. Bad management, bad products, bad business plans are punished by being allowed to die. By dying they clear the field for other, better things to take their place. If they are not removed, they clog up the system and bind it up with inefficiency and stagnation. When companies fail, there are people who get hurt - but I ask you which system is better; the free market of socialism as they had in Eastern Europe? Even in Europe itself, which are the strongest countries? Those with the most free market policies. Which are the worst? the ones with the most guv'munt say in their economic structures.

Let them go bankrupt. In the medium term and long term we will be a better nation for it. We should not be full of fear to do what is right. When you have a skin cancer, you don't just hide it with make-up - no you go to the Doctor and have it cut out before it kills the entire body.Where are the perp-walks? Where are the investigations? Where are the Grand Jurys? The gov'munt went after Scooter Libby like a bulldog on a pork chop - but for those who have caused trillions of dollars of economic damage through their fraud, we see nothing.

This petty corruption is a cancer on our society and economy. Without accountability, we sink to the level of nations we claim to be the better of....and we print money and more money and more money. There is a cost to this. When the guv'munt floods the market with dollars, the law of supply and demand will in time take its course. Inflation will follow, and all that money has to come from somewhere, it comes from public debt. Public debt that you are putting on the back of your children and grandchildren. That dept service will eat up more and more of our budget. We are already at the point where we borrow money just to pay the interest on our existing debt load. How does that work for your personal accounts? It isn't all that different for the guv'munt either.

Are you lost? Well, read this and then come back - it is a good start.

Debt and an inflated money supply will lead to one thing - inflation - it will come. Add to that increasing taxes as the Democrats let the Bush tax cuts expire in 2010. Add to that increasing regulation that will come with the Democrats. Add to that the protectionism they are heading towards. Add to that expanded social programs and their demands on the budget. Add to that the pro-union activity that will feed the cancer we already have in many sectors - especially public service unions. Add that up and more and you have stagnation. Stagflation.So, what can you do? Simple - first get your own house in order. Review your personal debt load - and get rid of it. Suck it up, down shift and unload debt. Start with your credit-card debt. Do you have $10,000 in credit card debt at 10-30%, yet you have a $10,000 CD only paying you 3.6%? Cash in the CD and get rid of the credit card debt....and then make sure you have a zero balance at the end of each month.

Never lease a car either - and don't take out a car loan. Need a new car - fine, save for it. If your self worth is wrapped up in your car, you need to re-evaluate your life. No car is worth going into debt over. If you can get yourself down to only a mortgage, then you are at a good balance spot. Now, pay down that mortgage and/or refinance to a 15 yr if you can and should.

Now that you have your personal life in order - go after your guv'munt. Democrat, Republican or Independent - if your Rep. or Sen. voted for the bailout of companies that had to do nothing in return, which is all of them from what I can see, then vote against them in the primary and general. I don't care what their views are on the other issues. If we have a guv'munt that feels it can repeat the mistakes of Argentina and not reap the same result, then the other issues will mean nothing as we will lose our Republic within two generations.

Hold your companies accountable. Are you a shareholder? Act like one. Review the companies you own - it is too late if you have not already sold - but what is the best company to own, Wells Fargo or Citi?

Accountability. Demand it. You won't always get it - but you never will unless you start. This isn't a right or Left thing - it really isn't. It is about power, money, status, and greed. Don't forget that our nation was designed to protect the people from those who run guv'munt and their natural desire for more power, more money, more status, and more greed.

If you are still with me, let me leave you with a simple summary of the facts. Back in High School, I guy in the class below me had a bumper sticker that just about established the foundation you need to have to understand what is waiting for us if we don't get control of the Bailout Nation. Everything has its price. In summary;